Dairy auction prices tipped to be flat

The price for New Zealand's key dairy product, whole milk powder, may be relatively flat at the overnight Global Dairy Trade auction, according to traders who track the NZX futures market.

The July whole milk powder contract was the sole contract to trade on Monday, closing unchanged on 50 lots at US$2,280, according to OMF's New Zealand dairy futures report on Tuesday.

Futures contracts from May through September last traded slightly ahead of their GlobalDairyTrade equivalents, "predicting a slight rise for WMP though it's a marginal call and could be flat", OMF said.

Skim milk powder futures contracts suggested a gain of about 5 percent and the overall GDT would likely be flat, the brokerage said.

"Premiums in whole milk futures versus GDT are quite small, better for skim milk and overall it's been pretty quiet and a bit mixed in the market,

"It's been quite hard to predict over the last few GDTs based on where the futures are but that's how it looks at the moment, so we think a rise for skim, flat for whole milk and probably flat overall for the index," said Nigel Brunel, financial markets director at OMF in Auckland.

Over the last three months, the futures have traded in a tight range with lower volumes as intervention in the European market sets a floor and cap on prices, resulting in less volatility, he said.

The European Commission announced in March that it would extend the volume of skim milk powder and butter able to go into its intervention programme ahead of the region's peak production period in spring.

Fonterra noted in an update this week that European Union milk production was ahead of last year, although New Zealand production declined in response to lower prices.

New Zealand accounts for only three percent of the world's dairy production, but 30 percent of the global milk trade due to the country's small domestic market.